Production Forecasting Best Practices Part 1
Welcome to the first installment of our new series on inventory management — the art and science of maintaining a balance between having what your buyers need when they need it while not getting stuck with excess inventory.
Maintaining this balance is vital to the health of a business. To help you keep inventory management top of mind, we drafted an inventory bill of rights:
Thou shalt deliver the right product in the right amount at the right time for the right cost to the right customer
Forecasting production
One of the more daunting challenges of inventory management is forecasting production. There are so many difficult questions to consider, such as:
- What quantity of each item should you order for production?
- Which colorway of an item will be the most popular?
- Will the normal size breakdown apply to a specific item?
- Should you over-order an item? By how much?
With so much on the line, what's a brand to do?
We talked to experts in the field and gathered a few best practices to help guide you through the process, including:
- Use a bottom-up approach
- Pre-Line when possible
- Meet your minimums
- Over-order with caution
Forecast from the bottom up
The most common advice we hear about forecasting demand is to use a bottom-up approach, starting at the lower levels and progressing upward. Rebecca Carlo, Sr Planning Manager at Lucky Brand calls it her best advice: “My best advice for planning an appropriate inventory level is to forecast as much from a bottom-up approach as possible.”
"Forecast as much from a bottom-up approach as possible.”
- Rebbecca Carlo, Lucky Brand
Data up
The bottom-up approach can be applied when gathering data as well as human knowledge. With data, start by looking at the numbers at the lowest levels, such as the specific products your buyers purchased. This is your data at the “bottom.”
Human up
Your human knowledge is in the form of opinions from people about the styles and products they think will sell well. Here, the bottom-up approach requires you begin with those closest to the ground level or “in the trenches” — your sales reps, product designers and most-trusted buyers.
Keep in mind that all humans have opinions and biases, both conscious and subconscious. Mike Reola, Lost Enterprises co-founder/co-owner, advises: “Know your reps. An engaged and detail-oriented sales manager should be able to assign weight properly to each rep’s feedback and opinions.”
“Know your reps. An engaged and detail-oriented sales manager should be able to assign weight properly to each rep’s feedback and opinions.”
- Mike Reola, Lost Enterprises
Tech up
The most effective way to bottom-up forecast is with the help of a robust B2B eCommerce platform that has a powerful reporting feature. You’ll be able to segment your data many ways, including by best-sellers, season, year, style, store, zip code and state. Be sure the platform you choose allows you to filter by sales rep. This will empower you to know your reps' selling histories, helping you to gauge the accuracy of their sales projections.
Example of a NuORDER’s Reporting Feature filtered by sales rep
Talent up
But, data only seems to be as good as those analyzing it. Reola candidly states, “It’s interesting that whether there’s no data or too much data — accurate or inaccurate — a good production buyer seems to be able to purchase well, regardless of what they’re provided. I’ve seen amazing buyers who start with no information and, working against seemingly unattainable minimums, still succeed. Then there are buyers who have more information than needed, 90% of their accounts pre-booked — well over the minimums — and they still blow it and end up leaving us oversold on the best styles, right out of the gate.”
"I’ve seen amazing buyers who start with no information and, working against seemingly unattainable minimums, still succeed."
- Mike Reola, Lost Enterprises
Pre-Lining
Many brands practice pre-lining, using first-round samples of their line before placing orders with their manufacturers. This process allows brands to weed out products, styles or even specific sizes and color-ways that fail to garner enough interest.
Tighten your line
A common mistake made by younger/smaller brands is to show a large range and not get enough demand per style to meet minimums. Use pre-lining to consolidate the range into a tight presentation.
A common mistake made by younger/smaller brands is to show a large range and not get enough demand per style to meet minimums.
How to pre-line
There are multiple ways to pre-line. Some brands invite buyers from key accounts to view the line and provide feedback. Fashion brands might organize private runway shows with models showing off the samples to gauge the invitees’ reactions. For big-box accounts, brands may go to their headquarters to pre-line so they can put in the large order with the manufacturer and ensure timely shipment.
No time to pre-line?
Sometimes, it’s just not feasible to pre-line. “If we’re unable to (pre-line), we use first samples, fabric swatches and linesheets to get feedback on what to produce and to decide which styles, if any, to drop,” explains Reola.
Maximize on your pre-lining work by having reps and buyers log in to your B2B eCommerce platform and start “Liking” styles and creating draft orders on products they like. This will provide you with accurate data that is stored in one place to reference when deciding the products and quantities to order from your manufacturers.
Takeaway
Keep your focus on creating a tight product range with strong styles. The larger your range, the more difficult it will be to meet the minimum order quantities required by manufacturers.
With these tips, you're on your way to upholding the first two bills on the inventory bill of rights: delivering the right product in the right amount. Just three more to go!
Next up in our inventory management series: Production Forecasting Best Practices Part 2: Over Ordering and Meeting Minimums
